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ENERGY

Will Germany set a gas price cap?

As energy costs rise further, more German politicians are coming out in favour of a cap on gas prices - and the government is reportedly looking into the matter.

Will Germany set a gas price cap?
A person turns the knob on their heating device (Photo by Ina FASSBENDER / AFP)

What’s happening?

With electricity bills having doubled in some cases and German inflation seeing post-war record highs of 7-8 percent each month, the German government has been making a lot of money available to help give some relief to people struggling with their bills.

Some of this money is designed to specifically target the financial pressure brought on by the rising price of natural gas – which around half of German households use for heat. Gas also supplies around a quarter of German electricity, but has nearly quintupled in price.

The government’s relief measures include one-off payments and a cut on the VAT put on natural gas from 19 percent to 7 percent.

READ ALSO: KEY POINTS: Everything Germany is doing to help relieve rising energy costs

But more politicians and experts are saying that’s not enough, and are calling for the federal government to pass a Gaspreisdeckel – a cap on the price of gas.

The Left Party has been advocating such a cap for months. But this week, leader of the conservative opposition Christian Social Union (CSU) Markus Söder, whose Bavarian party is sister to the Christian Democrats in the rest of the country, also called for a gas price cap.

“We are experiencing an unprecedented increase in the price of gas and it is essential to prevent normal earners from becoming low earners,” he said.

CSU Leader and Bavarian Premier Markus Söder is in favour of a gas price cap. Photo: picture alliance/dpa | Nicolas Armer

He says the federal traffic light coalition should also abandon plans for its gas levy, which passes on some of the higher costs of importing gas to consumers, and to suspend the national debt brake. That would allow more government money to be spent on relief.

READ ALSO: Germany to push ahead with gas levy plans

Alexander Dobrindt, who leads the CSU in the Bundestag, says a gas price cap should cover 75 percent of consumption in private households, with the remaining 25 percent determined by market rates. Dobrindt argues that allowing the last quarter to fluctuate would incentivise people to still save energy.

Who else wants it?

Söder’s CDU colleagues in the Bundestag say they’re also in favour of a short-term cap on gas prices to get through the winter.

Berlin Mayor Franziska Giffey also called for a cap this week.

She says she’s in favour of a Energiepreisdeckel – or a cap on electricity prices that goes beyond simply gas prices, and intends to take the matter to a meeting the 16 federal state bosses will have with Chancellor Olaf Scholz and his federal government on September 28th.

READ ALSO: German word of the day: Deckel

“The government needs to put an energy price cap in and give people the security they need to sleep peacefully again,” said Giffey, who unlike opposition politicians like Söder, comes from the same Social Democratic Party as Chancellor Olaf Scholz.

Berlin Mayor Franziska Giffey, from Olaf Scholz’s Social Democrats, wants an electricity price cap for both households and businesses. Photo: picture alliance/dpa | Wolfgang Kumm

She says that businesses threatened by rising costs should also benefit from a cap, alongside private households. She says the national debt brake should be suspended to pay for this.

In an interview with public broadcaster ZDF, economics professor and member of the federal government’s economic experts committee Veronika Grimm also called for a gas price cap, provided it still be set up to give people an incentive to save energy.

The Federal Association of German Housing and Real Estate Companies (GdW) is also calling for a federal gas price cap, warning that many tenants may not be able to pay their utility costs.

READ ALSO: Tenants in Germany need eviction protections during energy crisis, says housing boss

What is the government doing about it?

Energy and Economics Minister Robert Habeck of the Greens ruled out a cap on gas prices earlier this week, but Finance Minister Christian Lindner of the liberal Free Democrats has set up a working group that will look at capping gas prices.

The expert group will examine whether a gas price cap is possible, how it might be put into place, and how such a cap would be paid for, ahead of consultations with the federal state heads next week.

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MONEY

DAX hits record high: What you need to know about investing in German index funds

Germany’s leading index of blue-chip stocks - or the country’s 40 largest companies - hit record heights early on Wednesday. Here's what you need to know if you're interested in (ideally) getting a piece of the pie.

DAX hits record high: What you need to know about investing in German index funds

The DAX rose 0.2 percent and surpassed the 18,000 point mark for the first time. The index climbed to 18,001.42 points minutes after the Frankfurt Stock Exchange opened. 

The DAX, which is made up of the top 40 large German corporations including Daimler and BMW, continues to build despite a wavering German economy. Some analysts say positive inflation indicators in the US and the eurozone contributed to the rally.  

But how can you get a piece of the pie? Here’s what to know about investing in Germany before you shell out your hard earned cash. 

Can foreigners invest in Germany?

Yes, but US citizens may face some limitations. International banks must report to the IRS when serving Americans, so several German banks do not offer investment services to this population. If you are a US citizen interested in investing in Germany, you should speak with an expert or financial advisor about your options. 

In Germany, the main fund managers that offer index funds include the Allianz Global Investors, Deutsche Bank, iShares, and Vanguard. 

How can I invest in Germany?

Germany offers residents several different investment options including:

  • Securities (e.g., Stocks, ETFs, Bonds)
  • Real estate
  • Gold
  • Crypto

Each of these options carry different levels of risk. Interactive Brokers, Trade Republic, Saxo Bank, eToro, and Lightyear are some of the popular online brokerage account providers operating in Germany. These accounts allow you to invest in index funds. Traditional banks like ING and Commerzbank also offer some expats securities accounts where stocks and other investments can be purchased. 

READ ALSO: What to know about cryptocurrency in Germany

What is an index fund?

An index fund is either a mutual fund or an exchange-traded fund (ETF) that invests in a mix of stocks, bonds and other securities. Index funds are grouped to mirror regional markets or capture the growth of an industry like tech or oil. 

Index funds are considered a safer and more passive way of investing because they are intended to mimic the performance of a financial market index. 

What are some of the biggest index funds in Germany?

There are four indices available to invest in the German stock market. The DAX tracks the 40 largest German blue chip companies including Adidas, Deutsche Bank, and Zalando. This index grew more than 26 percent over the last three years.  

Deutsche Bank

A photo taken on August 13, 2021 shows the Deutsche Bank headquarters in Frankfurt am Main. (Photo by ARMANDO BABANI / AFP)

The FTSE Germany All Cap follows a mix of large, medium and small sized companies based in Germany. The performance of companies like Siemens, Deutsche Telekom, and Mercedes play a role in this fund’s performance. This index fund grew 15.04 percent in the same period. 

The F.A.Z. tracks the 100 largest German stock corporations across 12 industries. Companies like Hugo Boss, Bayer, and Lufthansa are included in this index fund which rose 13.25 percent over the last three years

The Solactive Germany 30 follows the performance of the country’s largest 30 companies including Porsche, BioNTech, and DHL. The index rose nearly 22 percent in a three year period

How are index funds taxed in Germany?

All investment income (capital gains and dividends) is subject to a flat tax in Germany. The tax rate is 25 percent plus the church tax and solidarity surcharge (5.5 percent). Without the church tax the effective tax rate on gains is 26.375 percent. When the church tax is included, the effective tax rate rises to 27.82 percent for Bavaria/Baden-Württemberg and 27.99 percent everywhere else. 

While the Solidarity Tax no longer applies to the majority of German taxpayers who make below  €73,000 as singles or €151,000 for married couples, it still applies to all capital gains, regardless of the amount.

The German government also offers a tax-free allowance for investment gains. Up to €801 when single or €1,602 when married is tax free. 

READ ALSO: What you should know about investing in Germany

Can you invest in foreign index funds in Germany?

Yes, but don’t forget to keep track of how much taxes you may owe if you invest abroad. When investing in Germany, banks automatically deduct the tax to pay to the authorities. 

But expat investors must keep track of profit gained from foreign banks and exchanges because the tax is not automatically deducted by banks not affiliated with the German tax authorities. The taxation rate remains the same for capital gains from foreign index funds.

As with all of our financial and tax summaries, this is a guide only. For financial advice which is personalised to your situation, please contact an accountant or other specialist.

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